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Settlement Requires Ranbaxy And Teva To End Collusive Agreement And Refrain From Similar Conduct In The Future

Schneiderman: New York Consumers Deserve Full And Fair Competition Among Drug Companies

NEW YORK – Attorney General Eric T. Schneiderman today announced a settlement with two generic pharmaceutical manufacturers, Ranbaxy Pharmaceuticals, Inc. and Teva Pharmaceuticals USA, Inc., resolving concerns that an agreement between them unlawfully restricted competition.

The collusive agreement, under which each of the generic drug companies committed not to challenge certain regulatory exclusivities held by the other, served to protect each party’s market positions with respect to dozens of drugs, and reduced the risk that each would face greater competition for its generic drugs. Today’s settlement requires the companies to terminate their unlawful agreement, commit not to enter into similar agreements in the future, and make a monetary payment to the State. The case also represents the latest application of recent legal precedent arising out of challenges to “pay for delay” agreements between brand name and generic pharmaceutical manufacturers.

“Agreements between drug manufacturers to protect each other’s market positions violate fundamental principles of antitrust law and can lead to higher drug prices,” said Attorney General Schneiderman. “Drug companies should be aware that my office will intervene aggressively to root out collusion among industry players and ensure that New Yorkers receive access to critical drugs at fair value.”

The agreement between Ranbaxy and Teva relates to a type of regulatory exclusivity awarded to the first manufacturer that seeks to market a generic version of a brand manufacturer’s drug prior to expiration of the brand manufacturer’s patents. This “first to file” exclusivity protects the generic manufacturer from competition from other generic manufacturers for a period of 180 days. The exclusivity award comes at a cost, however; during the 180-day period, generic drug prices are generally significantly higher than they are when the exclusivity period expires and multiple generics are allowed to enter the market.

If a competing generic manufacturer believes that the “first to file” generic manufacturer is not entitled to exclusivity – for example, because it was mistakenly awarded, or should be forfeited – the competitor may challenge the award by petitioning the Food and Drug Administration or filing litigation. If the challenger successfully shows that a party holding sole “first to file” status should forfeit its exclusivity, then typically all generics with FDA approval will be able to compete during the 180-day period. A challenge of this nature is therefore similar to a challenge to a brand manufacturer’s patent – a successful challenge leads to faster and greater entry of multiple generic competitors, which in turn leads to faster and greater reductions in generic drug prices. If, however, this form of competition between generic manufacturers is reduced or eliminated, consumers are less likely to benefit from these effects.

In this case, Ranbaxy and Teva agreed that each would not challenge the other party’s “first to file” exclusivities for a large number of drugs, for a several year period. This collusive “no challenge” agreement was part of a 2010 agreement entered into by them relating to the sale of a single drug – generic atorvastatin calcium, the branded version of which is sold by Pfizer as Lipitor®. Ranbaxy received “first to file” exclusivity for generic atorvastatin and was poised to enter the market on November 30, 2011, subject to receiving final FDA approval. However, in 2010, Ranbaxy was not sure that it would receive FDA approval in time. Accordingly, it negotiated an agreement with Teva providing that, if Ranbaxy were unable to enter the market and certain other conditions were met, then Teva could enter the market instead, and the companies would split the profits. The agreement would have enabled Ranbaxy to obtain some financial benefit from its exclusivity rights even if it could not enter the market on its expected entry date.

Although the atorvastatin agreement related to the sale of only one drug, by including the “no-challenge” commitments as part of that agreement, Ranbaxy and Teva each agreed to shield dozens of their drugs from legal and regulatory challenges by the other. This agreement artificially protected each company’s market positions for numerous drugs where one of the parties held sole “first to file” status, and reduced the chances that consumers would benefit from increased generic competition on an earlier date. The “no challenge” agreement was not necessary for the success of the atorvastatin arrangement, and was not reasonably ancillary to any legitimate purpose. The settlement with the Attorney General requires the parties to terminate the “no challenge” agreement, refrain from entering into similar agreements in the future, and make monetary payments to New York State totaling $300,000.

The Attorney General’s case against Ranbaxy and Teva can be seen as the latest application of recent legal precedent arising out of actions that have been brought by the Federal Trade Commission and state attorneys general against collusive “pay for delay” agreements. “Pay for delay” cases involve a generic manufacturer’s agreement to drop a challenge to patents covering a brand manufacturer’s drug and accept a delayed entry date, in return for compensation. This case involved a commitment by one generic drug manufacturer to refrain from analogous legal challenges to a large number of another generic manufacturer’s drugs, in return for a reciprocal commitment from the second manufacturer.